Term Sheet

In venture capital investing, a term sheet refers to a letter written by an investor, typically a venture capital firm, to a start-up company outlining the basic terms of the investment agreement. These financial terms would include the investment amount, the stake to be taken up by the investor, and the implied pre-money valuation and post-money valuation for the investor.

Other terms include preemptive rights by the investor to invest in future rounds or to acquire additional stakes if some of the existing investors decide to sell their shares in the company, antidilution and rachet provisions to protect the investment value of the investor, as well as the rights of the investor in such matters as hiring of senior people in the company, representation at the company board, and consent before the company can file for public listing or sell the company.

Once the term sheet is agreed upon by both the investor and the company, the investment agreements are then prepared in accordance to the agreed terms; although if market conditions change and/or one or both parties change their mind, the terms may be amended before the legal documents are entered into.

Term Sheet